Danish Investing Giant ATP Exits Six-Year Bet to Target More Risk

ATP, which is Denmark’s biggest pension fund and one of Europe’s top institutional investors, is for the first time in six years looking into putting more of its money into riskier investments.

The board of ATP, which manages 748 billion kroner ($120 billion) in taxpayers’ retirement benefits, will in coming months look into adjusting the fund’s strategy as forecasts show the current setup will result in returns falling by more than half, Chief Executive Officer Christian Hyldahl said in an interview in Copenhagen. Part of that adjustment is designed to keep pace with an aging population.

“Since 2011 we’ve actually had a pretty wide buffer to the risk budget” that the state-backed fund is permitted to take, Hyldahl said. “If we take more risk, there’s a risk of losing a lot of money. On the other hand, if we take too little risk, then we cannot secure purchasing power.”

“We haven’t generally put on a lot of risk since 2011,” he said. “You can say we’ve done well and so on, but had we taken full risk, we would have made a lot more money.”

ATP, which is based north of the Danish capital, delivered investment returns of 14.7 billion kroner ($2.3 billion) in the first half of the year, or more than double the result it achieved a year earlier. Most of that came from Danish equities. The 12-month return on ATP’s investment portfolio is at a five-year high of 24.7 percent.

The result was “extraordinary,” Hyldahl said. The fund targets annual returns of around 7 percent on the portfolio, under the current strategy. (The portfolio, also called the bonus potential, is used to top up minimum pension payments, which are met by a separate hedging portfolio.)

“The markets have been buoyant and we’ve been doing fairly well,” Hyldahl said. More money is also being set aside as retirees live longer (1 billion kroner in the first half of this year alone).

ATP uses a so-called factor-based investment strategy that slices investments into risk categories: equity, interest rate, inflation and a category simply labeled other. The board sets allocation limits, and the total is supposed to be less than the bonus potential. At the end of June, ATP had a bonus potential that was “almost twice the risk consumption,” according to the fund’s six-month report.

To keep up with an aging population, “we have to make more money,” Hyldahl said. “And if we want to make more money, we need to take more risk.”

The fund has already been making some adjustments within its current strategy, he said. “We’ve been working on getting the inflation exposure up” to “make sure that we make money if inflation picks up,” he said. ATP has also increased exposure to interest rate instruments.

The changes have reduced the relative weight of equities in the total portfolio and moved it closer toward management’s target of 35 percent. Equity risk made up 44 percent of the total in June, down from 50 percent at year end. “We have not decreased, in absolute terms, equities as such,” Hyldahl said.